There are many choices pre-retirees have to make as they approach retirement. One of the most important, yet often underestimated, is when and how to start Social Security benefits. The majority of Americans take social security at the earliest possible age, but is that the right strategy for everyone? No one’s retirement goals or financial situations are identical, therefore, ideal-Living spoke with financial advisors Lawrence Tundidor AAMS, AWMA and Daniel Weiss CRPC of the Tundidor & Weiss Investment Group with securities and investment advisory services offered through Voya Financial Advisors (rebranded from ING Financial Partners) to help shed some light on this very important choice.
The first step is to evaluate your specific needs. Considering your fixed and discretionary spending as well as whether you are planning a full or partial retirement are key in determining whether to take Social Security early or defer. After evaluating other sources of guaranteed income, such as pensions and annuity income, it is then pertinent to evaluate any income gap that may be present. This is important in deciding if activation of Social Security is required at the earliest age of 62 or if you can defer to the full age of retirement, or the latest possible age of 70.
The second step is to consider your personal life expectancy. Whether you take benefits early or later, the system is designed to give each individual the same amount of money by the time they reach their expected lifespan. By waiting, those with good health and reasonable expectation to live past the “average” stand to have an advantage. Traditionally, married couples are in a better position to benefit from the deferral process due to the fact that there is a 50% chance one will live past the average life expectancy. It can also be beneficial because a spouse will inherit the deceased spouse’s Social Security if the benefit is higher than their own. For every year you defer taking benefits after your full age of retirement, there is an 8% credit, therefore making it very predictable when considering a proper retirement spend down plan. If you decide that deferring benefits makes sense, planning how to generate the required income in the meantime, and in the most efficient manner from other investment assets, such as 401k/403b, IRAs, personal savings, and real estate, are extremely important.
Two popular social security maximization strategies which married couples have been using for many years have been recently altered under the new bipartisan budget deal. The first strategy is called ‘File and Suspend’. This is where the higher earner at full retirement age will file for Social Security and immediately suspend receiving his benefit. His spouse is then allowed to receive 50% of his Social Security benefit at this time. This will allow his own benefit to grow 8% each year until age 70. One spouse must be at the full retirement age to utilize this benefit. Unfortunately, the use of this strategy will be revoked sometime around May of 2016. Those who are currently using this strategy will have their benefits grandfathered in and those turning age 66 before the law goes into effect will still be able to utilize the strategy.
The second popular strategy, which is also being altered, is called ‘Filing a Restricted Application.’ In this strategy, a spouse can be receiving benefits and the beneficiary, as early as age 62, will be paid the higher of their own benefit or 50% of their spouse’s benefit, given their spouse has reached full retirement age. Should the beneficiary start to collect the 50% of their spouse’s benefit, they can allow their own benefit to grow up until age 70 should they choose. You may still utilize this benefit if you have turned age 62 by the end of 2015 and one spouse begins taking benefit at full age of retirement. Typically, this strategy works best when a married couple has unequal Social Security benefit amounts and it makes sense for the higher earner to file a restricted application and allow their own benefit to grow.
It is clearly evident that how and when you take Social Security depends on your individual situation. Having a solid financial plan that includes a social security strategy is key in determining your best course of action. For those who have existing financial plans in place that include utilizing the affected strategies, they should review their plans for any possible changes. For those who don’t, this would be a great time to start planning. To learn more about how to choose the right Social Security strategy for you, please attend our seminar held at the Bridgewater and Bergen County ideal-living Expos in February. In the meantime, if you have any questions, feel free to visit www.TWinvestmentgroup.com.
Securities and Investment Advisory Services offered through Voya Financial Advisors, Inc. (member SIPC) Tundidor and Weiss Investment Group is not a subsidiary of nor controlled by Voya Financial Advisors.